Wednesday has very little in the way of economic reports scheduled. They are:-
7:00… MBA Mortgage Applications
8:30… Durable Goods
10:00… New Home Sales
10:00… FHFA Housing Price Index
10:30… EIA Petroleum Inventories
1:00 PM… Results of $36B, 5-Year Note Auction
• American Eagle Outfitters (AEO),
• Toll Brothers Inc. (TOL),
• Guess?, Inc. (GES),
• JDS Uniphase Corp. (JDSU), and
• TiVo Inc. (TIVO).
Wednesday sees U.S. stock set for a slightly lower open, as investors maintained a wary outlook ahead of more news on the housing market. Yesterday, data showed July existing-home sales plummeted to the lowest level in 15 years.
Reports on durable goods orders and new home sales are expected for the morning.
Durable Goods Orders
A report on durable goods orders is expected to show sales of goods that are expected to last at least three years rose 2.8 percent in July compared with the prior month. Excluding volatile transportation orders, sales likely rose 0.5 percent. The report is due out at 8:30 a.m. EDT.
That would be a positive sign for the manufacturing sector, which has shown weakness in recent weeks. A regional manufacturing report last week showed activity in the Mid-Atlantic shrank. Manufacturing had been among the most consistently strong sectors of the economy during the first half of the year when growth was stronger.
New Home Sales
A separate government report due after the opening bell is expected to show that sales of newly built homes rose in July, to an annual rate of 334,000 units from 330,000 units the month before.
On Tuesday, the National Association of Realtors reported a 27% drop in existing home sales, which are considered the core of the residential real estate market.
Home sales have been particularly weak since a home buyer tax credit expired at the end of April. High unemployment has kept people from buying homes because they are worried about their jobs. Banks have also been cautious in making new loans after taking huge losses in recent years from failed mortgages.
Notes of Importance
There are a few further points to the mornings trading which need to be considered:-
• The Dow Jones Industrial Average (DJIA) dropped 134 points on Tuesday to close at its lowest level since July 7. However, the blue-chip barometer held psychological support at the 10,000 level, as market bulls came out early in defense. However, if today's economic reports on new home sales and durable goods miss the mark, DJIA bulls could be kissing goodbye to 10K and potentially saying hello to 2010's lows near 9,600 in short order.
• The S&P 500 Index (SPX) is trading just above potential support near 1,045, though a poor round of economic data could have a chilling effect.
• Gold futures have gained $5.50 in to trade at $1,238.90 in London - an eight-week high for the malleable metal.
• The U.S. Dollar Index appears to be headed higher once again this morning, gaining 0.17% to trade at 83.29 at last check.
• Benchmark crude futures: After closing at an 11-week low on Wednesday, oil prices regained some of that ground in Asian trading due to a spot of weakness in the U.S. dollar. Crude is holding onto some of that ground in electronic trading state-side, with the front-month contract rising 0.29% to $71.84 per barrel.
• Bonds: Prices for Treasurys were mixed. The yield on the 10-year note edged up to 2.50% from a 19-year low of 2.49% late Tuesday.
• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,055,972 call contracts traded on Tuesday, compared to 774,594 put contracts.
• The CBOE Market Volatility Index (VIX) broke out to a two-month high on Tuesday, and is threatening to close above short-term resistance in the 28 region. As I have said before, a continued rise in the VIX does not bode well for the equities market.
European share markets were under pressure in early trading. The CAC 40 in France fell 0.6%, and Britain's FTSE 100 and the DAX in Germany lost 0.4%. Investors digested Standard & Poor's slashed rating of Ireland's sovereign debt. The agency cut Ireland's rating by a notch to double-A-minus, citing the massive cost of patching up the hemorrhaging Irish banking system.
• In Europe at midday, London -0.5%. Paris -0.5%. Frankfurt -0.3%.
The dollar firmed against the euro, the British pound and the Japanese yen.
Earlier in Asia, markets ended lower. Japan's benchmark Nikkei index dropped 1.7%, the Hang Seng in Hong Kong shed 0.1%, and the Shanghai Composite sank more than 2%.
Japanese stocks hit a 16-month closing low as disappointment spread over the lack of policy action by Japan to rein in the strong yen. Japan's finance minister sharpened his rhetoric on the yen's steep gains after the Nikkei newspaper reported Japan may consider selling the yen in solo intervention if speculators drive it up.
• In Asia, Japan -1.7% to 8845. Hong Kong -0.1% to 20635. China -2.0% to 2597. India -0.7% to 18180.
As of 7:30 a.m. in New York, the Dow Jones Industrial Average futures were down 8 points, or 0.08%, to 10015, the S&P 500 index futures fell 2.5 points to 1047.30 and the Nasdaq 100 futures fell 2.75 points to 1771.00.
• Futures: Dow flat. S&P flat. Nasdaq -0.2%. Crude +0.1% to $71.72. Gold +0.4% to $1238.40.
Toll Brothers (TOL)
U.S. luxury homebuilder Toll Brothers Inc (TOL) swung to a quarterly profit helped by lower impairments and tax benefits. Horsham, Pennsylvania-based Toll Brothers, which builds in 21 states with a focus on the move-up market, also said it expects gross margins before interest and write downs to improve in the fourth quarter.
For its fiscal third quarter ending July 31, Toll reported a net income of $27.3 million, or 16 cents per share, compared with a loss of $472.3 million, or $2.93 per share, a year earlier. Revenue slipped 2 percent to $454.2 million.
Selling communities fell 19 percent to 190, while home building deliveries slid 1 percent to 803 units.
The company said it expects deliveries in the fourth quarter to be 560 to 760 units.
Builders have unanimously described a decline in demand subsequent to the tax credit's expiration on April 30, noting that the credit induced buyers to accelerate their decision to purchase a home.
Pretax write-downs stood at $12.5 million in the quarter compared with $115.0 million last year, while tax benefits amounted to $26.5 million.
Shares of the company, which have lost about 32 percent of their value in the last four months, closed at $16.19 Tuesday on the New York Stock Exchange. They touched a year-low of $15.57 Tuesday.
Pacific Sunwear of California Inc. (PSUN)
Pacific Sunwear of California Inc. (PSUN) said that its second-quarter loss widened to $23.5 million, or 36 cents per share, from $14.2 million, or 22 cents per share, a year ago. Excluding one-time items, the company would have reported a loss of 22 cents per share. Revenue fell to $218.3 million from $242.8 million in the year-ago period. Analysts estimated a loss of 23 cents per share on revenue of $213.3 million.
Some Interesting News
• American Airlines union rejects contract offer. Mechanics at AMR Corp.'s (AMR) American Airlines rejected a new pay deal yesterday, raising the possibility of a strike at the second-largest U.S. airline. More than 6,000 members of the Transport Workers Union of America voted against the proposed contract and only 3,371 voted in favor, unraveling a tentative accord reached between American and TWU negotiators in May. The breakdown in negotiations could renew pressure on the National Mediation Board to allow American's mechanics to go on strike after several years of unsuccessful talks between labor and management.
• Shareholder lawsuit seeks to halt Hertz purchase of Dollar. Shareholders who are opposed to Hertz's (HTZ) takeover of rental car company Dollar Thrifty (DTG) have filed a lawsuit seeking a court order to halt the transaction. The suit also accuses Goldman Sachs of working both sides of the deal and it accuses Scott Thompson, Dollar's CEO, of not acting in the company's best interests when he declined to meet with Avis (CAR) to discuss a counterbid. Dollar Thrifty shareholders are expected to vote on the Hertz bid on September 16.
• Apple nears iTunes deal with Disney, TV firms. Apple (AAPL) is in talks with Disney (DIS) and other network owners that would allow the computer company to offer television episodes for sale on iTunes. It is close to gaining access to ABC shows from Disney, but the proposal is facing at least some resistance from other TV companies, including CBS (CBS), General Electric's (GE) NBC Universal, News Corp. (NWSA), and Viacom (VIA.B). The shows would cost $0.99 and would be available for 48 hours after purchase. Apple is also working on a device that would allow users to stream video directly to their television sets, which could be announced as early as next month.
• BHP posts profit, stands firm on Potash bid. BHP Billiton (BHP), which is pursuing a $39B hostile offer for global fertilizer maker Potash (POT), announced second half results of a net profit of $6.77B, up from $4.59B in the year-earlier period and its best profit in two years. The results fueled speculation that BHP could substantially up its bid for Potash. Yet, BHP CEO Marius Kloppers was quick to quell any ideas that positive results mean more firepower for the deal. On a conference call, he told investors that BHP would not pay just any price to win the bid and that it would remain disciplined in the process. In premarket trading, BHP shares +0.9% (7:00 ET).
• Dell enters the smart phone market. Dell (DELL) unveiled its first smartphone for the U.S. market yesterday, entering into an increasingly crowded arena with a product that uses the Android operating system from Google (GOOG). The new phone, called the Aero, will sell for $99 with a contract from AT&T (T), and $299 without one. Dell says it is the lightest of the phones available that use Android. The move, which is an attempt to keep up with Apple (AAPL), was criticized by some as too little, too late.
• Goldman losing market share in corporate bonds. Goldman Sachs (GS) is slipping in one area that has usually been a strength of the Wall Street leader: underwriting corporate bonds. As Goldman seeks to put a run-in with the SEC behind it, it is now losing market share in bond underwriting to its rivals. The profitable Wall Street firm has slipped to 10th in helping the world's companies raise debt, down from ninth last year and as high as third place in 2003. JPMorgan (JPM), the second-biggest U.S. bank, is leading global underwriting for the third straight year, while Deutsche Bank (DB), Germany's biggest lender, is ranked second.
• SEC charges 2 with insider trading on BHP-Potash deal. In other news on BHP's (BHP) pursuit of Potash (POT), two Spanish investors were charged with insider trading by the SEC, which alleges that the pair traded on secret information about BHP's plans to launch a bid for Potash. The SEC said they made an illegal profit of $1.1M by trading on their information. One of the men was head of research at Banco Santander (STD), which is advising BHP on the deal.
• Ireland's debt rating downgraded by S&P. The credit rating on Ireland's government debt was cut one notch by S&P to AA- from AA. The ratings agency cited the projected cost of propping up the country's financial sector, as the key reason behind the downgrade. S&P said its new projections suggest that Ireland's net general government debt will rise toward 113% of gross domestic product in 2012. That is more than 1.5 times the average of other eurozone nations and well above that of similarly rated countries.
• Credit card debt hits lowest level in 8 years. As card holders continue to pay off balances, the amount of credit card debt dipped to its lowest level in eight years during the second quarter. The average combined debt for bank-issued credit cards, such as those that carry the MasterCard (MA) or Visa (V) name, fell to $4,951 in the second quarter, down more than 13% from $5,719 in the same period a year ago, according to TransUnion, which tracks consumer debt. Fear of unemployment and a tighter credit environment, as the economy continues to sputter, contributed to the decline in consumer debt.
• BOJ considers move as yen rises. Tokyo officials said they may call a special meeting to consider moves to intervene in the path of the yen, which has been surging recently. Any such action would be to smooth sharp market moves if the yen moved too far or too fast. The currency, which recently hit a 15-year high, pulled back earlier today on news of possible actions to slow its rise. Japanese officials have not intervened in the market since 2004.
Stocks tumbled Tuesday after a worse-than-expected plunge in existing home sales fueled worries about the economy. The Dow ended the day down 134 points amid growing signs of a relapse into recession.
Major indexes have been hit hard in recent days because of ongoing concerns about the pace of economic recovery. The Dow Jones industrial average has fallen 3.6 percent during its current four-day losing streak.
Joshua Raymond, market strategist at City Index, said that "investors are not willing to take on too much risk with important economic data coming in thick and fast."
Traders will watch closely the new-home sales data, which have "taken on added significance after yesterday's very poor existing-home sales and the profit warning issued by Irish firm CRH," he said in a note to clients.
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